Kooky is Trump...

How 'kooky' is Trump's Keystone pipeline proposal?

Grabbing 'a piece of the profits' of the Canadian-backed project is 'how we're going to make our country rich again,' he says.

By Elana Schor

Donald Trump's vow to resuscitate the Keystone XL oil pipeline in exchange for a share of its profits has a glaring problem: It risks running afoul of laws against government takings of private property. And even supporters of the project warn that it risks hurting relations with Canada, the nation's No. 1 oil supplier.

The presumptive Republican nominee has repeatedly pledged to revive the Canada-to-Texas pipeline, a long-standing cause for Republicans in Congress, but Trump has brought a twist. He wants U.S. taxpayers to get a slice of the project's revenue.

"I want it built, but I want a piece of the profits," Trump said May 26 before delivering an energy speech to an oil-industry audience in North Dakota. "That's how we're going to make our country rich again."

That proposal may mesh with Trump’s famous fondness for the “art of the deal,” but it’s not what GOP lawmakers called for in their multiple attempts to approve Keystone over President Barack Obama's resistance. They simply wanted to grant developer TransCanada’s permit request, without making any cash grabs, just as regulators routinely do for countless other energy projects.

Trump’s plan could run into legal trouble as a taking of oil industry property, and would probably violate World Trade Organization agreements and Congress’ exclusive constitutional authority to make decisions on taxes, experts say. It has also ruffled some feathers north of the border, with Globe and Mail columnist Jeff Jones writing that the likely Republican nominee’s “kooky” proposal “sounds uncomfortably like nationalization.”

“In fact, why stop at oil pipelines?” Jones added. “Mr. Trump could demand a fatter take from natural gas lines or even restaurants and retail stores.”

People in the U.S. oil industry are largely shrugging off Trump’s pitch for Keystone profit-sharing, saying his overall pro-drilling agenda is preferable to Hillary Clinton's energy platform. But they’re hardly rallying to the proposal.

"You're not building a high-rise here and getting shaken down by the local union for a donation to the pension fund — you’re building a major pipeline through the U.S.," one oil industry lobbyist said. "Something like this is a deterrent on pipeline investment. It’s not taken seriously, because it’s just completely nuts."

Obama rejected Keystone last year after a politically charged review that stretched on for more than six years. Trump first slammed Obama for leaning against the project in 2012, long before the president formally declared that the pipeline's 700,000-plus barrels per day of new Canadian heavy oil imports "would not make a meaningful contribution to our economy.”

But not until Trump took his presidential bid to New Hampshire did he begin talking about extracting fresh monetary concessions from TransCanada. Trump told primary voters in November that he would want the government to get 25 percent of Keystone's profits.

Rep. Kevin Cramer (R-N.D.), who has advised Trump on energy policy, defended the candidate by suggesting a scenario "where I think he's onto something" that could meet his goals without triggering any legal tripwires.

The United States could press TransCanada to allow crude oil from North Dakota a greater share of space in the pipeline, Cramer said in an interview, which would amp up the project’s benefits for the U.S. economy. The Canadian government initially suggested that U.S. oil would make up as much as 25 percent of Keystone's capacity, but domestic drillers were committed to getting only around 8 percent before Obama killed the project. (One of Trump's newer and more influential oil-industry patrons, Continental Resources CEO Harold Hamm, played a leading role in winning dedicated U.S. space on the pipeline.)

Cramer added that Trump "negotiates on simple terms at the biggest advantage to his position."

On the other hand, Cramer said, "I'm not sure how familiar he is" with the economic gains that U.S. states already stand to receive from the 1,100-mile pipeline project — benefits that TransCanada says would include tens of millions of dollars in annual property taxes and a $3.4 billion infusion into the broader U.S. economy.

Vincent DeVito, a partner at Bowditch & Dewey who served as assistant energy secretary under President George W. Bush, said Trump's idea “is not half-baked," because negotiations to "sweeten the pot, that's very common in the siting industry."

But former Assistant Commerce Secretary Alan Dunn said the demand for extra concessions from the Canadian pipeline could violate a crucial principle of WTO pacts that the U.S. is a party to — a "national treatment" standard that commits governments to applying the same tax systems to foreign imports and domestic goods.

"There are just not a lot of ways to do that, to justify a differential tax treatment or regulatory treatment, without violating that national treatment obligation," said Dunn, who served as a lead negotiator on the North American Free Trade Agreement after being nominated to the Commerce post by the first Bush administration.

Mark Maddox, who served as acting assistant secretary of fossil energy under George W. Bush, agreed that any arrangement adding a "premium on oil coming from Canada, that speaks to NAFTA issues, trade issues."

"I'm not certain what the path to implementing his idea is," added Maddox, who now leads the consulting firm Maddox Strategies.

Then again, bumping up against trade agreements may not prove much of a deterrent to Trump, who has condemned NAFTA as a "total disaster for the United States" and has pledged to "rip up" deals that put Americans at a disadvantage.

Meanwhile, TransCanada might be game for any gambit that wins approval for its long-frozen pipeline.

The company responded coldly to Trump at first, telling reporters last month that the U.S. should follow a regulatory "model that has been in place for decades" — namely, “granting appropriate permits” to projects that qualify for them. But the company was more equivocal when POLITICO asked if it would nix Trump's pitch outright.

"One thing that we didn’t emphasize strongly enough" in an initial response to Trump, TransCanada spokesman Mark Cooper said by email, "is our overall encouragement that the door would be open to approval and that the presumptive nominee is encouraging reapplication. As per the details of what a reapplication would look like, we’ll wait and see when that time comes."

Brian Ferguson, CEO of the top oil-sands producer Cenovus, told Canadian television network BNN last month that he expects that aides to a President Trump "would explain the economic benefit to him of having more Canadian heavy oil available to U.S. refiners."

But the Canadian oil and gas industry's leading trade group stayed above the fray. Canadian Association of Petroleum Producers spokeswoman Chelsie Klassen referred comment on Trump's idea to TransCanada, given the hypothetical nature of any agreement between the likely presidential nominee and the company.